The jewel you found is part of the sword the Great Equalizer. You have to find the hilt yet and yes, you take it to the Dwarf Cromwell. He will forge it for you, but it costs like 5000 gp. I can't remember, it's been awhile. Level drain is a function or attack that will remove levels of experience from a person. Say you are a 10th level fighter. If somebody uses this on you then you will be 9th level. This is immediate and can only be restored by the restoration spell (cleric). Many major undead will have this ability. So if you see your overall hitpoints go down, this is probably why.
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